I'm the Founder and Managing Partner of Ironfire Capital LLC, which runs a tech-focused hedge fund and angel fund. I did a Ph.D. in Management at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management. You can follow me on Twitter @ericjackson, subscribe to me on Facebook, follow me on Sina Weibo, or Circle me on Google+. My email is: dr.eric.jackson@me.com

The Seven Habits of Spectacularly Unsuccessful Executives

In it, he shared some of his research on what over 50 former high-flying companies – like Enron, Tyco, WorldCom, Rubbermaid, and Schwinn – did to become complete failures. It turns out that the senior executives at the companies all had 7 Habits in common. Finkelstein calls them the Seven Habits of Spectacularly Unsuccessful Executives.

These traits can be found in the leaders of current failures like Research In Motion (RIMM), but they should be early-warning signs (cautionary tales) to currently unbeatable firms like Apple (AAPL), Google (GOOG), and Amazon.com (AMZN). Here are the habits, as Finkelstein described in a 2004 article:

Habit # 1: They see themselves and their companies as dominating their environment

This first habit may be the most insidious, since it appears to be highly desirable. Shouldn’t a company try to dominate its business environment, shape thefuture of its markets and set the pace within them? Yes,but there’s a catch. Unlike successful leaders, failed leaders who never question their dominance fail torealize they are at the mercy of changing circumstances.They vastly overestimate the extent to which they actually control events and vastly underestimate the role of chance and circumstance in their success.

CEOs who fall prey to this belief suffer from the illusion of personal pre-eminence: Like certain film directors, they see themselves as the auteurs of their companies. As far as they’re concerned, everyone else in the company is there to execute their personal visionfor the company. Samsung’s CEO Kun-Hee Lee was so successful with electronics that he thought he could repeat this success with automobiles. He invested $5 billion in an already oversaturated auto market. Why? There was no business case. Lee simply loved cars and had dreamed of being in the auto business.

Warning Sign for #1: A lack of respect

Habit #2: They identify so completely with the company that there is no clear boundary between their personal interests and their corporation’s interests

Like the first habit, this one seems innocuous, perhaps even beneficial. We want business leaders to be completely committed to their companies, with their interests tightly aligned with those of the company. But digging deeper, you find that failed executives weren’t identifying too little with the company, but rather too much. Instead of treating companies as enterprises that they needed to nurture, failed leaders treated them as extensions of themselves. And with that, a “private empire” mentality took hold.

CEOs who possess this outlook often use their companies to carry out personal ambitions. The most slippery slope of all for these executives is their tendency to use corporate funds for personal reasons. CEOs who have a long or impressive track record may come to feel that they’ve made so much money for the company that the expenditures they make on themselves, even if extravagant, are trivial by comparison. This twisted logic seems to have been one of the factors that shaped the behavior of Dennis Kozlowski of Tyco. His pride in his company and his pride in his own extravagance seem to have reinforced each other. This is why he could sound so sincere making speeches about ethics while using corporate funds for personal purposes. Being the CEO of a sizable corporation today is probably the closest thing to being king of your own country, and that’s a dangerous title to assume.

Warning Sign for #2: A question of character

Habit #3: They think they have all the answers

Here’s the image of executive competence that we’ve been taught to admire for decades: a dynamic leader making a dozen decisions a minute, dealing with many crises simultaneously, and taking only seconds to size up situations that have stumped everyone else for days. The problem with this picture is that it’s a fraud. Leaders who are invariably crisp and decisive tend to settle issues so quickly they have no opportunity to grasp the ramifications. Worse, because these leaders need to feel they have all the answers, they aren’t open to learning new ones.

CEO Wolfgang Schmitt of Rubbermaid was fond of demonstrating his ability to sort out difficult issues in a flash. A former colleague remembers that under Schmitt,” the joke went, ‘Wolf knows everything about everything.’ In one discussion, where we were talking about a particularly complex acquisition we made in Europe, Wolf, without hearing different points of view, just said, ‘Well, this is what we are going to do.’” Leaders who need to have all the answers shut out other points of view. When your company or organization is run by someone like this, you’d better hope the answers he comes up with are going to be the right ones. At Rubbermaid they weren’t. The company went from being Fortune’s most admired company in America in1993 to being acquired by the conglomerate Newell a few years later.

Comments

That’s a very good point, and I would go further. Could it be that having these are the traits not only of “spectacularly unsuccessful” executives, but also of the “spectacularly successful” ones? In other words, as there is an important element of uncertainty in business, “success” has a probability distribution.

• An executive without these “habits” (consensus seeking, realistic about own abilities, willing to consider all opinions before making a decision), may make this distribution “narrower” – i.e. less probability of a spectacular failure, but also less probability of spectacular success. Some would call this “mediocrity”. I would call it sustainable value creation.

• An executive with these “habits”, on the other hand, is betting all for all. In other words, they are making the distribution “wider”: by allowing for a long tail in the downside, they also allow for a long tail in the upside. As in the “monkeys-with-darts” analogy of fund management, some will make it spectacularly and be called “visionaries”, some will fail spectacularly and be called all kind of bad things. Even a very small few will make it big consistently. (and that few will always exist if there are enough people trying –the law of big numbers).

Thus these “habits” may also be necessary conditions for spectacular success, not only for spectacular failure.

Maybe it’s about time that we stopped idolizing the ones who make it very big, and start appreciating the ones that make it less spectacularly, but more consistently, delivering sustainable value for their shareholders, their employees, and everyone else…

I agree w the comments. This is not correct as Jobs and Many – even Most – über successful and INSPIRATIONAL CEOs have theses traits but ‘work them in the positive’. The trick is that their Vision must be something WORTHY of creating a Corporate Culture around! Hubris is a fearless leader who constantly re-assesses and keeps the trajectory Pure to a Good Vision! Enron obviously was built on lies!!

I see a lot of this in Google. They’re trying to cut off (or buy out) any innovative company who could possibly be a threat to them. Digg caused Buzz. Twitter caused the birth of Wave. Facebook caused Plus. Now Groupon caused Google Offers.

As I wrote in my book “What If? The Entrepreneurial Answer”, you will find that I speak to what ego can do to a company. In my turnaround consulting 90% of the companies had cultures established by ego centric individuals. The other 10% had non-supportable business models.

So the list is a series of identifying traits of overt ego being present at the head of the company, which leads to a culture, that in the long run will fail.

Each of those habits could be spun positively. #1: They believe in their companies and the mission; #2 They have personal commitment to the company; #3 They try to be as informed as possible, and one step ahead of their subordinates; #4 They build a team that can arrive at consensus; #5 They are tireless ambassadors of their company and its reputation; #6: They express confidence in their company and its mission — sometimes to the point of hubris; #7: They stick to their knitting and their core competences. If the executives had continued to be successful, the positive interpretation would have dominated their coverage — e.g. Jack Welch. They failed for other reasons, then the academic steps in, samples on the dependent variable, and imposes an interpretation of the actions to suit the outcome.